Australia in the red in ICT wars

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The news gets worse each year. Again the Australian Computer
Society has released its annual report on the national information
and communications technology trade deficit and again we have gone
backwards.

Last year Australia imported $19 billion more in ICT goods and
services than it exported. Over the past three years, imports have
gone up by nearly 20 per cent and exports have gone down by 10 per
cent. Over the past five years, we have imported about $90 million
more in ICT equipment and services than we have exported.

To put this in perspective, our ICT trade deficit is higher than
our total exports of iron ore, beef and wheat combined. Australia's
overall trade deficit is at record levels, exceeding $25 billion
last year. ICT makes up just about all of that and the proportion
is increasing.

You would think this would be front-page news. But our political
masters are not concerned. Their attitude is that we gain more from
our use of ICT than we lose from paying so much to import it.
Indeed, former Minister for Communications Senator Richard Alston
accused the ACS of "peddling 19th century mercantilist dogma" for
daring to suggest that we should do something about reversing the
direction of the trend.

The figures come from an annual report the ACS commissions from
Professor John Houghton, of Victoria University's Centre for
Strategic Economic Studies. Professor Houghton has been producing
these reports annually for many years but the news seems to have
lost its capacity to shock. I am a believer in free trade and
globalisation. Adam Smith's law of the comparative economic
advantage of nations is a self-evident truth. Anybody should be
able to import anything they want, free from tariffs and other
trade restrictions, because certain countries have advantages which
they are right to exploit, which makes for cheaper goods and a
higher standard of living for all.

Our export of ICT services is the one bright spot in the picture. We export almost as much as we import - this is one area where we have virtually no ICT deficit.

So there is nothing in itself wrong with a high trade deficit in
a particular area, so long as it is balanced by a surplus in other
areas and so long as it is expensive or inefficient to make by
ourselves whatever it is that is being imported. But in the case of
ICT, the figure is so high that we really should look at what we
can do to arrest the trend.

The government loves talking about export successes, which are
somehow always due to government policies. But don't look to the
government to take any of the blame for the manifest failure of
Australia to capitalise on its many strengths in the ICT industry.
It's always someone else's fault.

Don't look to the main body representing Australia's ICT
industry either. The Australian Information Industry Association,
which is supposedly the mouthpiece of Australian ICT companies, is
largely silent on the matter. That's because the AIIA is dominated
by the multinational ICT companies, who are mainly responsible for
the imports.

And don't blame the Americans. US trade comprises just 14 per
cent of our ICT imports. That's second highest (after China's 23
per cent) but more than 40 per cent comes from just five other
Asian countries - Malaysia, Japan, South Korea, Singapore and
Taiwan. Europe is no longer in the chase.

Most of these imports are cheap hardware (communications gear,
computers, screens, etc.), that we shouldn't make here and which is
best made in countries where Smith's laws of comparative advantage
hold.

In the mid-1990s we exported nearly $1 billion annually in
computer hardware but that figure has declined by nearly 75 per
cent over the decade as our manufacturing industry has become less
competitive. So we can't really reduce the trade deficit by making
hardware here. Nor will reducing expenditure on software make much
difference - software and software licences comprise less than 10
per cent of the deficit. The best way to make up the ICT deficit is
quite clear - it is to increase exports.

What should we export? As Adam Smith would tell us, we should be
exporting that which we can do better or cheaper than other
countries. Our export of ICT services is the one bright spot in the
picture. We export almost as much as we import - this is one area
where we have virtually no ICT deficit.

Australians are well-known in many markets around the world as
innovative software engineers and good project managers. You meet
Australians in the ICT industry all over the world. So, you would
think a clever government would foster Australia's strengths in
this area. Instead, services are subjected to the same myopia that
affects government policies in other areas of ICT. Most government
services contracts are given to multinational companies such as
EDS, CSC and IBM Global Services. Australia has an abundance of
good, mid-sized services companies but they are actually penalised
by the Australian government's policies.

Local ICT companies, pay higher rates of tax than their
multinational competitors. The total tax rate in Australia has
steadily increased. Taxes get higher, our companies become more
uncompetitive, our deficit increases, we have to borrow more to pay
our way.